Just over a month ago, in Birmingham, the Prime Minister trumpeted that austerity was finally over. On Monday, in his Budget statement, the Chancellor was more sanguine, claiming that austerity was not over but “coming to an end”. Perhaps most disappointing was the disingenuous claim that austerity had been a necessity, that there was no choice and, indeed, that austerity had not been driven by ideology.
Let us be clear, austerity is and was a choice. The path chosen by the Chancellor’s predecessor, George Osborne, was totally opposite to that chosen in the US, where Barack Obama introduced the American Recovery and Reinvestment Act in 2009, a Keynesian package of economic stimulus that has resulted in the highest and most sustained recovery of all G7 countries in the period since the global financial crash—and it was a global financial crash, irrespective of what Mr Davis may say.
Monday’s Budget announcement was particularly important, because we are at a pivotal point—a point at which the economy is faltering, and where we face huge uncertainty and, according to the Office for National Statistics, the most serious economic damage from Brexit of between a 2% and a 8% drop in gross domestic product, depending on the deal. In fact, UK growth is the lowest of the G7 countries—almost half that of the EU composite and more than half that of the US and the OECD countries.
Our benign growth has been kept afloat these past years by consumers enjoying super-low interest rates and sizeable gains from windfall payments due to the banks and other financial institutions’ mis-selling of payment protection insurance—some £40 billion so far, and another £18 billion likely, according to recent reports. Even before the additional sum, that equates to between 1% and 2% of GDP, or an additional £1,000 for every adult in this country. That is a significant sum; a significant stimulus. I shall use two sectors to evidence the impact of such sums on the economy: record sales of cars and new kitchens in recent years, as consumers have cashed in on those payments to finance high-ticket items.
Now we face reality: consumer confidence is trending downwards and is not far off the same level as it was in 2010. New car sales, generally a good proxy for consumer confidence, were down 20% in September and 8% year on year. Household debt is rising at an alarming rate, unsecured debt in particular—debt because people cannot afford to live. Universal credit is hurting, not helping, and with the rising use of food banks and the explosion in the use of payday lenders, the pressure on households is greater than ever as more and more people face the phenomenon of in-work poverty. Also, as Sir Michael Fallon highlighted, savings have fallen dramatically in the past year or two.
The claim by the Chancellor that we are witnessing a jobs miracle is yet another line from the George Osborne songbook. This is no jobs miracle; it is a jobs mirage. How else do we account for underemployed, zero-houred and insecure employment? There is low capital investment because labour is so cheap and flexible in the UK—easy to hire, easy to fire, so why invest in machinery and plant that could improve productivity? It is not a productivity puzzle; it is simple.
Elsewhere, we are seeing lay-offs and shutdowns in the jewel of our manufacturing sector, the car industry. Production was down 17% in September, 7% in the year to date, and by 19% in our domestic market. Clearly, there are particular issues with testing regimes but, beyond doubt, the introduction in last November’s Budget statement of a hike in vehicle excise duty on diesel has been particularly damaging to the UK car industry, especially Jaguar Land Rover. Without the revenues and the profit, there can be no investment in the transition from the internal combustion engine to alternative fuels. That is what the industry sought from the Chancellor—support, not damage.
While I am disappointed by the lack of immediate support for the car industry—a sector so vital not only to the UK economy but to the people of Warwick and Leamington—the failure of this Budget to address the desperate needs of our schools, police and fire and rescue services is just as notable. Without the investment in our children’s education, our health service, our security and our infrastructure, we will fail tomorrow. Expenditure now—investment—is the lifeblood of our future. Giving £110 billion in corporate tax giveaways by the end of this Parliament denies us the means to do this. Somehow the Chancellor believes that £10,000 for a primary school to help with those “little extras” like books and pens is good governance: try telling that to the children who have lost their teaching assistant.
In years to come, economic historians will come to view this period as the UK’s lost decade—years when so much could have been achieved had the trajectory of growth of late 2009 and early 2010 been maintained. It was stifled by ideology; a Government in the spirit of 1945 would have secured it.